Over the past three decades, almost half of all states have implemented some form of performance funding in an effort to improve the performance of their postsecondary institutions.
This working paper reviews existing research on performance funding programs in a multitude of states. The studies suggest that tying funding to outputs has immediate impacts on colleges in the form of greater institutional awareness of state priorities and of their own performance, and increased status competition. As a result, colleges in performance funding states demonstrate increased use of data in planning and policymaking, enhanced academic and student services, and implementation of practices that promise to improve student outcomes.
The data indicate, however, that performance funding does not increase institutional outcomes such as improved rates of retention, completion of developmental education, and graduation.
This working paper identifies obstacles to the effective functioning of performance funding as well as unintended impacts, and concludes with recommendations for how states considering performance funding can overcome and address them.